A.M. Best Affirms Ratings of TD Reinsurance (Barbados) Inc.

A.M. Best has affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a+” of TD Reinsurance (Barbados) Inc. (TD Re) (Barbados). The outlook for both ratings is stable.

TD Re is a life reinsurer that is ultimately owned by The Toronto-Dominion Bank (TD Bank) (Toronto, Ontario). TD Re principally reinsures credit insurance policies underwritten by third-party life insurance carriers on consumer loans originated by its Canadian retail bank branches. Subsequently, TD Re retrocedes those Canadian risks to several unaffiliated reinsurers and accepts non-Canadian risks of a similar nature from those unaffiliated reinsurers.

The rating affirmations reflect TD Re’s continuing pattern of strong profitability, solid capitalization, strong liquidity and its conservative investment portfolio. Positively trending operating earnings reflect a steady increase in new business volume. Additionally, the ratings recognize the high credit quality of TD Re’s investment portfolio, which provides good liquidity with a short duration that adequately matches its liability profile.

These strengths are partially offset by TD Re’s historically high shareholder dividend payouts, which have maintained capital levels, and a dependence on consumer loan originations for growth. While the overall operating fundamentals of TD Re remain strong, any decrease in consumer loan originations in Canada could impact TD Bank’s ability to sell credit insurance, thus impacting TD Re’s growth prospects. Any declines in Europe’s economic conditions could also impact TD Re’s ability to retrocede assumed risks to its European counterparties.

Positive rating actions are unlikely in the near or intermediate term. Factors that may cause negative rating actions include a significant decline in the company’s capitalization or business outlook, a decline in operating performance that impacts its business model, or negative rating actions at TD Bank. Additionally, potential tax changes announced by Revenue Canada may have a negative impact on the operating and business profile of TD Re.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

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